The Future of Shopping: From Virtual Try-On Tech to E-Shopping Chatbots, AI is Revolutionizing Retail

[MUSIC] Hello, everyone, and welcome to another episode of Retail Refined, a market-scale podcast with your host, me, Melissa Gonzalez. Today, we have an exciting episode for you as we are going to be diving into a hot topic that seems to be everywhere these days. It was a big topic at NRF, recent convention that happened in January, and it is going to be a topic at ShopTalk. And that topic is artificial intelligence or AI, and its transformative potential in retail. In this conversation, we're going to be demystifying the opportunities of AI, what it presents for enhancing the shopping experience both online and offline. And joining me for that conversation today is Joe Dittmar. He's a partner and retail industry leader at IBM Consulting. And he leads IBM's retail industry across the company's portfolio, and that includes grocery and department, warehouse, specialty, discount convenience, restaurants, and online retailers. He's busy. His organization is responsible for strategy marketing, offering solutions sales, and delivery of IBM's consulting solutions to achieve bookings, revenue, profitability objectives, and client and net promoter scores. He's at the forefront of integrating AI technologies into retail to create seamless, personalized shopping journeys. And there's so much to dig in around that. So I'm really excited about this conversation. Joe, I only gave a high level of introduction to you. Welcome to the program. Thank you so much for joining me. Before we get started with the conversation, tell us a little bit more about your role at IBM. Well, first of all, thank you, Melissa, for having me here today. And for the opportunity to address this topic, I mean, it's. The first thing I would say is, AI is not as scary as everybody makes it out to see. Right? The fear is really of the unknown. Because it's still very new. We're still very much on the young side of the adopter curve, if you will, the early stages. The reality is, as we climb that curve, I think more will be seen by the public, by the consumer. And I think they'll get a lot more comfortable with it. Because the truth is, AI has been here. It's been in practice for going on 30 years now. It started with machine learning back in '87. So it's not like it's new. It's just new. It's new to you. It's new to the market. So for that reason, and many more, that's what I get to do for a living. I grew up in retail. I started working at Abercrombie and Fitch and helped them online. And I have spent my entire career helping retailers connect with consumers. And it's what I enjoyed doing the most. So AI is the latest in tools that help us unlock the value for consumers. And I love that you say there were tools because that is what it is. You say people find it to be scary, but it's a tool that us humans could use. So I'm excited to dive in more into that. And all the things that you've been pushing forward. So tell us what is your role as you're leading your group in terms of AI and implementation? So I lead the consulting practice for IBM. So chief dreamer, part renegade, part realist. My job is to challenge everybody's status quo from the consultants that I lead to the customers that we advise. And when they're comfortable, I help them get uncomfortable. I love that. The reality is anybody who is comfortable with status quo right now may not be in business by the end of this year. Oh, for sure. That's the speed we're talking about. The challenges. We're coming out of probably the one of the fastest growing inflationary periods I've ever seen in my lifetime. I'm granted, I'm not as old as I look or feel most. But in all fairness, it's the most in recent times. And that drove up costs of everything from human labor to to cost of goods sold to the materials that go into every product we sell. All the costs went up. So in order to stay afloat as retailers, we can only pass so much on and pricing. So we really do have to address our general and administrative costs. We have to address our marketing costs. We have to address everything. And the only way to do that is looking at how we can scale with digital workers versus hiring more people. We can't grow the fiftoms. At the same time, the fiftoms we've been growing over the last 40 years inside of our retail organizations, they've gotten really large. We have groups that used to be run with five or six people now have 50 to 100. And we just have to find smarter ways of working. What I think they did. Yeah, I think the advantage to that though is that it also allows to unlock the greater value of the human potential. Right, if you have AI with some of the more routine mundane parts of it, then the team you do have, they're unlocked, right? Absolutely. I think one of the biggest, one of the biggest misnomers, if you will, or the biggest challenges that AI has is that people think it where places are human. Well, it actually doesn't. It replaces helping you get started on a hard project. What's the hardest thing to do when you're writing a response to an email? It's typing the first sentence. Well, if it fabricates a response that's kind of a rough draft and then you just have to modify it slightly and hit send, I don't know if you've ever sat there and typed an email response to your boss and stared at it for an hour. If the AI could help you start writing it and put out a good draft really quickly and then you just spend two minutes making it better, wouldn't that be a better use of your time? Then, belaboring it for an hour will translate that over to an allocation plan or a response to a consumer who's upset about getting the wrong product or a consumer who's looking for an item and you don't have time to call around to all the stores to try to find the product in the back stock in a store because you're not 100% sure whether or not the inventory is up to date enough. But AI could figure that out. Yeah. Well, you talk about a lot of good use cases and you said a couple of things that I just want to touch upon. One, AI is not necessarily new and I think all of us can do a survey of our lives and point out if we really think about it, right? Whether it's asking a serious question on your phone or asking Alexa or whatever it is, we're all doing those things, right? And those responses are getting more and more useful. The traffic looks like how much time do I need to plan to go to work? So we are doing those things but it's getting such a magnified glass on it right now because the decades worth of work that's been happening behind the scenes is starting to come to light which is exciting. And so you talked about a few use cases but I just want to also highlight a report that you released during NRF. I mean, we can dig into that a little bit too because to your point, it's a tool, but we first have to understand what the consumer is needing, right? So that as you're working with the tool, you can really be delivering upon what's going to provide gratification and less than pain point. So this report that you released at NRF revolutionized retail with AI everywhere, customers won't wait. Can you share with us some of your audience, he findings from the survey and what does that indicate when we think about consumer expectations and retail? Absolutely. So there's obviously there's two groups that this truly helps, right? When you look at it from how can retailers look inward at leveraging AI, but the report itself really is telling because it shows that the consumers are ready. They're finally ready for us to start to turn it outward towards them. And that's the moment we've all been waiting for because trust in retail is sacred. And as retailers and this goes back long before I started in retail, trust is the only thing in retail. It takes forever to earn it and seconds to lose it. And when you lose it, I think the teams, the CEOs that came long before me and they were and retail said it only takes one bad customer. experienced to lose a customer for a lifetime. Yeah. I think that was Walton who said that. And it's true. And it still holds true today. So for that reason, retailers are right for being nervous about turning AI loose outward because it's going to be communicating with a lot more customers quickly. But they're ready. They're ready to start having small pieces turned on. And where they'd like to see it, faster checkout, more information. They'd like greater variety of products, but they don't want to sort through your products. They want relevant product. Right. Right. Relevant to them. Generated for them, you know, very detailed for them because they want what they want when they want it. And they're willing to give you more information for that. So we start to, we start to look at that. And then we dug even deeper and we saw they want more payment options. They want to reevaluate how payments are conducted. All of these things are injecting intelligence into what was the retail paradigm of yesterday year. You know, this is going to take an evolution. And that evolution is going to take a lot of steps and processes. And you can't do this with human interaction. Right. If to have a human curate all of this variety of products would take us decades. To process all of these checkouts with these new payment types would add decades worth of labor into the process. Right. All of this is not something we can just turn on tomorrow without having something intelligent like AI, like gen AI, specifically when it comes to some of the product curation and creation and information creation without having something that can create content. It would take too long and cost too much. What is important though is that you have the strategic infrastructure in place like what you're leading, right. So you can program the tools in order to make sure that it's collecting the information need. There's an always learning mentality happening through that because what I thought was interesting too was one of the first steps and I have the report up, see me looking at it. Retailers and brands are falling short of consumer expectation was one of the insights. Only 9% say that they're satisfied with the in-store shopping experience. It's pretty low. Yes. And the web's only slightly better. 14%. I mean, so it's a lot of work to do. A lot of work to do, but we can only do it if we know, okay, well, then what are the expectations and how do we meet upon them and through data, right. You're able to clean some of that. It is. When we, so when we went out and we spoke with all of these consumers around the world, the message was consistent. I think different age groups, it had slightly different variations. I think Gen Gen Z is going to be very unique and in print and how they respond. I think that group has more hustle than any generation we've seen. They remind me a lot of Gen X. I mean, we for the alphas, but yeah. What's that? I said, we for the alphas, but yeah. I don't think anybody's figured the alphas out yet. All right. I think they're still I think they have a lot. I think we're still figuring them out. But but Gen Z has a lot of hustle and grit that is going to really come into focus here real soon. They have side jobs on side jobs on top of court regular jobs. And that's just watching what they do and how they make decisions on what they'll what where they buy and how they spend their money is very unique, but they're also very willing to provide information. So I think alpha is going to be totally different from that even to your point. Words I think we're still learning about Gen Alpha. I think long way. There's only so much we're allowed to interview that crowd with parents being their watch. I interview my daughter all the time, but I get it. That's my daughter too, but I don't trust half the things she tells me because I'm dead, but I watch what she buys and you know it's it's unique, but it's different from her older sister who buys. So you know it's going to continue to evolve, but one thing is consistent about those two groups is they provide more information to drive personalization and to drive that curation because once I know your palate, I should be curating my entire sortment to you. Once I know your style, I should be curating my entire sortment to you. Some of these some of these sites and some of these retailers have incredibly vast assortments and they're not meant for everybody. And that's okay. I need to speak to you in a singularity so that I can extract more of the wallet share from you versus you seeing these other products thinking, oh you don't understand me, I'm going to go ahead and leave now. For sure. And the the tension, standard patients without our shorter because if they are sharing, then it comes with that expectation that that is what you're going to deliver back to me. Yes. One of the other points in your report that we mentioned too that I thought being nice to touch upon is them wanting relevant information to shop more sustainably and wanting to really understand the ingredients that go in and really having that level of transparency and companies really not providing enough of that these days. I think that the real data point there is transparency and trust. And this goes back to the comment I made earlier. Trust continues to be key in retail. And now that we're evolving to the point where we are in freedom of information, availability of information, transparency. Retailers just expecting you to be able to share that with them. It doesn't take much for you to pass along the information of where that product was manufactured from, where it originated from, where its ingredients came from, and pass that information along in order for them to better understand its origin. It just makes it, it adds another level of trust. Now, does that apply to everybody? No. I'll be the first one to tell you I have a client that's a major retailer who absolutely believes that they do get a premium for some of their merchandise. But they also understand that if they say something sustainable and they charge $5 more, their client may not pay the $5 more for something that's just because it's sustainable. For sure. Okay. So, and this is a very, very famous brand who it's market. I gotta be careful with how I sit because I'm gonna give the name of the client. It's market. They do feel that they have the right to charge $5 more for something. And because that's part of shopping at that store versus their competition. But they don't think they can get away with $5 more than that just to be sustainable. No, I would have to call it a common theme for sure. Yeah, we stand by and sustainability, but that's a whole other, like that ecosystem needs to do a lot of work so that the economics can, you know. Yeah. So transparency is key. Transparent for sustainability, transparency for health reasons for food products. All of that is important. So that portion of sustainability, how it was manufactured, how it was transported. We do care about it. Consumers do care about it to a degree, right? It's it's a what what I call a a say do gap. What they say and what they do. And there's a gap between the two. It's there's a say do gap there. And economics and a challenging economic environment like we're in right now. That say do gap can get really big, really fast when people's wallets are being crunched. I agree. Well, I think that's where there's an opportunity for AI because the more transparency could provide, then it can also help with demystifying some of that information and falling into, you know, the motivations of wanting to live more sustainably and brands having the opportunity of not just saying that they do that, but empowering the consumer to live that in as well. One of the other things, and then we'll can pivot to some other questions I have, but you talk about use the term in the report to unified experiences. And as we head up to the shop talk, there's a whole track dedicated to unified, right? We are, I think, nicely transitioning from the term Omni Channel to unified experiences, which consumers are cravings. So can you tell us a little bit about that and the initiative you're seeing with AI to help facilitate that? You got to love us marketing people. So when I started back in the day, we created multiple channels, then we created multi channel, then we created Omni Channel. Now we're unifying it finally unifying it. Maybe someday we'll just call it retail. The reality is, when we created all of these channels, we created a bespoke nature to our business that's not sustainable. And by not sustainable, I mean, we have four groups inside of a retail organization that support the operations of retail. So I have a stores team, any calm team, and and maybe a call center. And there's duplication across the different channels in the end, and they may have different pricing, they may have different order capture systems, they may have to take different discounting algorithms, because they're operated by different back office systems. So in when we unify them truthfully, we're creating a singular experience for the consumer finally. And that is, no matter where you engage me as a retailer, you're going to have the same experience. And where you left office, where you pick up. So if you start engaging me on a t-shirt online, and you go into the store, when you go to checkout, I'm going to ask you if you still interested in that t-shirt you were looking at online. Or if you call up to ask about the t-shirt, I'm going to mention to you, hey, did you also know that the other product you were looking at last week that you kept coming back looking at is also still available? Do you want to consider that as well? Because I think those two go well together. So there's your client telling from from another conversation that you've had on one of your past podcasts. Yeah, there, right? Pulling those together, you start to see how you unified the experience of retail across all situations. The same applies for marketing. capturing the signals from from all of the different customers. From where they originate as they as they engage your brands. Well, you're also talking about creating a more holistic experience, right? And consumers don't come saying, oh, I'm going to interact with your website today and your store tomorrow. They're going to say I'm having a brand experience or not. So can you each so why you unified something holistic? Make airpods falls out. Each of those environments or channels still have its own set of complexities, right? Online shopping has its own set of challenges that you have to account for and and to improving the digital shopping experience, but then in store has a different one. The example you get around client telling is a great way to bridge it because if you have kind of an online profile, that knowledge should hit the store associates in store. But can you just break it down a little bit as you're thinking about the sets of challenges that exist across that continuum, right? And how AI is helping to create this holistically positive experience. So I'll give you an example of an approach we're taking for a retailer today. We've taken over the front end of all the inbound phone calls to their company. So we answer the phone, that inbound contact has access to all of their data, product information, order information, customer information, everything. As it comes in, it's capturing that information and and in it's having a dialogue and intelligent conversation with the consumer, populating their CRM. So the case is created, anything they're talking about is being captured in that CRM. That's also populating and hydrating their CDP, which has all their customer data profile. So as they have a successful engagement and we satisfy the customers request or whatever they were calling in for, if we solve whatever the problem is, we're capturing that information into the CDP to see if that further triggers. Oh, I don't know them qualifying to be in a different cohort or a different different group to be marketed to. Likewise, if it has to get on passed on to a human or a specialist, whether that's a specialist around product or a specialist around store or department of their store, whatever it is, it captures that information and that relationship, what's going on in it, again, populating that into the CDP. Once inside the CDP, that's striving personalization everywhere, personalization, I'm back to the website in real time, personalization for any digital or print marketing that's going to outbound to you, personalization for the next time you call into the call phone number. That's what we mean by the unification, right, unifying that experience, because prior to this, all of those systems, they were all on their own, they didn't have any understanding of you as an individual. They had three different understandings of you as an individual. And maybe, maybe if you were lucky, everything you did was dumped into a data warehouse at the end of the day, if you were lucky. Well, one of the things too, just bridging this together as well as it's having these systems optimized, but it does create some need for change management and we think about how humans are operating across these different environments too. Can we talk a little bit about that? You know, because they also have to be kind of retrained to how to best utilize these tools, whether it's client telling, whether it's like understanding real time inventory, you get to inquiry, there, you know, I see something online, I want to go into the store and get it. It's not at the store. How do we capture that moment of intent really help that customer get to their house as easy as possible? I mean, there's so many scenarios, but it takes you to management as well. Yeah, well, the good news is it's intuitive for it's intuitive for our store employees, it's intuitive for our consumers. The biggest challenge is getting our internal employees in IT to get their heads around the fact that there's an easier way to do things. That's that's always the biggest challenge because there's a programming language or a favorite application that they had that they grew up with that's been there for 20 years that may not be fit for purpose going forward. And that's that change management piece is always the biggest challenge from a store employee perspective. And if I told them I could hand them if they could use their own personal phone and just take a picture of the price tag and it would pick up the skew and do a look up and find that the where the where the closest place was that had that product and they could change the size and color to find the one that they're looking for based on the picture of that particular price tag. By pulling up the right key item, they would all instantly be like that's genius. Like you just cut hours off of me looking in the stock room. First of all, you'd be able to tell me it's in my stock room, which I don't know if you've been into a retail apparel store's stock room lately. Many times. It looks like a 12 year old's bedroom. I should say that the the the the apparel for older adults does not look like a 12 year old stock room or a bedroom but the apparel store that I might have grown up in occasionally looked like my kids bedrooms. I know their competition definitely did. It's just that's what happens. You get create gets crazy in the stock room becomes a mess and it's hard to find stuff. And you don't realize you have that. Yeah, well, I love that use case. I'm going to ask you for a couple more. But going back to the the conversation around change management. What like what groups are the key stakeholders that are usually optimal to kind of have at the table when you're having conversations, you know, to make sure that the implementation is successful. So there's so many right answers to that question. So I'll I'll say this, if we're doing it focusing it internally right now with the level of general and administrative cost takeout that needs to happen in retail, it has to be the CEO at the table for the transformation that has taken, that has to happen inside the four walls of home office. Okay. That needs CEO to be on board. Mostly because we're talking about putting the power inside of every employee's hands to jumpstart their day, whether it's how they decide where the allocations are going or what merchandise we're going to source and where we're sourcing it from or the transportation route that it's gonna choose. If we're gonna introduce AI across the entire corporation to improve and optimize the cost of operating the company, it needs to be a CEO level decision. When it comes to the stores and the customer, it's really the chief customer officer, it's the head of stores and stores operations that really do matter the most when we're talking about stuff we're gonna do out in the field. Because at the end of the day, they remember, they've grown up with the stores, they remember what it's like living the life of running the cash register, running the store, restocking the store. They remember what it was like when I was in retail and we had to reticate an entire store overnight. There are things you do that you do once in your career and you pray you never have to see again. But they've all lived it. So they're the best gauge of what's possible. - Side their store. And what's gonna truly help and be impactful right away? - Yeah, no, they have the context which makes them. Okay, so going back to some examples, I love the example of you could take a picture, right? And you get all that information. Can you provide a glimpse into maybe some of the other strategies that retail could employ or different use cases that you've seen that you're excited about for retailers today? - So I mean, there's just so many now that-- - Yeah, just a handful. - Right, so one of my favorites is obviously finding the inventory but not just finding it but finding the cheapest and fastest way to get it to the consumer and getting it either to their home, wherever they want to consume it, right? To get it to the whole credit to the store. But doing it in a way that really makes it a light touch for the consumer, in most cases they don't even know. So one of my clients during COVID, we were fulfilling out of all their stores and their customers didn't know. All of the back stock, we cleared the stores, we had one person working in the store, just packing the store, shipping it to end consumers. Just to empty the stores. And that worked for us and that was all AI. And nobody knew if it was AI working in the background to make those decisions. They're incredible use cases around the personalization right now, around what we call retail monetization which is the marketing that goes on similar when your integrals restore the end cap. That's CPG companies who are investing to have their product on the end cap so that hoping that you'll buy more of it. Well, those national brands also buy end caps, if you will, on retail companies on their websites. Well, that's driven by personalization and AI and artificial intelligence to decide when they're going to spend the extra money to boost their product up in the search results or boost the product up on a category page to buy the hero trying to get your attention. I'm trying to thank some other fun ones that are, they're countless AI in the fraud detection. And again, it's all about processes. How do we do processes faster that used to take human intervention so that they look at where your IP address is coming from mapped against your address, mapped against the credit what the credit card thinks your address should be, mapped against the amount of money you spent today, determining what your fraud score is. And your credit card is running that in real time, all the time, and deciding whether or not to accept the charge. Brilliant things like that are protecting you each and every day so that you no longer have to go on to your credit card and say, hey, I'm traveling today. Right. Right. Now your credit card knows. Remember, I was told calls you had to make. Yeah, I remember. Yeah, because it's looking at a propensity for you to purchase this type of product at this type of location is this outside the norm for you and how far outside the norm is it of you. And that's AI making that decision. So, you know, there are just so many wonderful uses of AI that are out there in the world and applied already that we don't think about, but man, they do make our life so much easier. Yeah, so when it's most successful, it's just so seamless, we don't even realize. So I'm gonna ask you a hard question before we wrap up. What are the one or two things you're most excited about when you think of the future possibilities of AI? So I think from a retail perspective, you know, specifically from my clients, I think that we're at an inflection point all right, with all the costs that went up. We have, you know, we have just so many things coming at us in a perfect storm right now that I do believe that Gen AI and AI are hitting at the right moment and it's so ironic that it's 25 years after e-commerce really took off, right? If you call it the right, you know, we were really getting up, picking up speed 25 years ago on e-commerce in '99 and we're 25 years later and this is taking off. I just see so many similarities in the level of efficiency that this is gonna bring to our businesses from process improvement because e-commerce introduced process improvement to retail. It challenged the status quo for how we merchandise, how we thought about our buying patterns. Well, if AI can challenge that at 100X as fast as we were challenging the store buying, which was like ironically like 1.5X faster than they were doing it or 1.5X times what they were doing it. I mean, just imagine what we can do with the freedups brain power of the humans that are running these companies. We can create brands that are back being hyper focused on the consumer. They'll be very much aligned to their brand purpose. They'll be on mission. You won't have brands veering off from their client which we see today, it happens. It's a drift. There's brand drift out there. - Very quickly too, especially with the younger generation. Yeah, very exploratory. - There is, but if we have curation and we have a lyrsa, you can prevent brand drift by staying on point, on message to them and better understanding of them and seeing what they're doing in their digital lives and keeping your brand message on point with them as they do change and evolve. You can stay in message and it's sync with them. So there's just so many different things that we can use AI and Gen AI to do in that sense. One of the things I was helping the client with was if you look at, we'll use IBM as an example as I like to do because I can quote IBM. If you look at the masters, the masters were Wimbledon and you think about, here's two iconic brands. They're so iconic, they have their own language addiction. - Okay. - Think about it. How the masters talks about the rough and the different likes of the rough and it's very specific. about them and how they talk about each stroke and what have you. And then you have the All England club who's completely different with the British accent talking about tennis. And you have two groups. Couldn't be more different in the world. But we trained AI to translate play by play. What was going on on the chord from video, not from an announcer talking, from the video. And create simul casts in all of these different languages in real time. I need that for soccer. I mean watching soccer blows my mind is so much happening. If EFA wants to hire IBM, they know we're going to get out into the universe. It's an idea. I'm putting it out there. If EFA wants to hire IBM, I'm available. I'm available. I played soccer in college. I'm available. I will come be the quality assurance head of that program. I just asked that I get tickets to the New York championship game for the World Cup. That's all. Just to make sure I can I want to make sure the quality is there though for all the trans questions. But you start to think about that. Two very particular brains like if word is off. It's it's worse. It's terrible. It's a violation of trust. They trusted us to do that in real time. And when they go back and rewatch all the footage and all the videos of all the matches, they don't find an issue. And we're talking every language, every, but every tennis match. All of this was done in real time using Gen AI. If we can if that's possible for a sporting event. Imagine what we can turn that to for brand who has to be on point for every for describing every shirt for describing, you know, every piece of fruit for describing, you know, everything in their business. I just I think the it's endless possibilities for creating content for curating content. And for creating engagement and with that. We can move faster. No absolutely absolutely. Well, the lot the future holds. And yeah, and so much to touch upon. And I think everybody needs to continue to follow what you're working on because there is so much more to come. So how do listeners do that? How do they continue to follow on and get more information and also see update? Well, so you can grab a copy of our our study at IBM.com/ibv. You can download the consumer report. You can also download our CEOs guide to AI from that from that address as well, both of which are incredibly powerful documents. One's all about the consumer, but the other one is really anybody who ever wanted to know about AI, you're the CEO of your own life. And there's so much you could do with AI and Gen AI. And it's just it's eye opening every business leader that I share it with. Rights back after reunite and says thank you. Okay, well expect some emails then because people are going to I'm going to read it too, but people are going to be downloading it. Well, thank you so much for spending the time. This time goes by so quickly and you can stay on for a lot longer. I know. But again, everybody this is Joe Dittmar. He is partner and retail industry leader of IBM consulting. Really appreciate the time. There's so much to miss to phone. It comes to AI, but it's going to be a hot topic this whole year. So lots of follow up on and again, thank you so much for the time. Thank you Melissa for having us.